Incongruously, Ford recently stated they have over 80 days of inventory and Daimler-Chrysler announced their Chrysler division was going to lose $1.15 billion this quarter. What’s the deal? While many automotive manufacturers are profitable there are rumblings. Getting lean wasn’t enough. Competitiveness in the twenty-first century requires more: deeper cost cuts, faster response times and better customer focus.
In our opinion the answer is simple: stop building to forecast and build to order. Building to order can dramatically reduce costs. How to do this isn’t so simple although anyone can build to order. Doing it quickly enough to satisfy the customer is another thing. Customers will be satisfied when you can build them what they want, when they want it, at a price they are willing to pay. Several of the automotive manufacturers are involved in a project to find out how to do this in the context of rapid build-to-order. The Three Day Car Programme is named after the goal of responding to a customer with a build-to-order car in two weeks or less. Custom built automobiles currently can take 6 months -- though the average is 12 weeks. Interestingly the manufacturing cycle time for a standard automobile is over 40 days even though there’s less than 7 days of value added time in an automobile, including delivery time.
Granted, a successful build-to-order strategy will not overcome bad design, unpopular features,poor quality or operating legacies such as batch production. The biggest challenge in our opinion is how supply chains are managed.
Supplier development and partnering initiatives will be important as a means to overcome the challenges to the automotive industry’s successful implementation of build-to-order business models.
We predict every industry will be similarly challenged.